In too deep

Of all the mathematical equations we’re faced with daily as financial planners, there’s none quite as simple as this: to be debt-free you need to spend less than you earn. Coupled with the widely accepted axiom that money can’t buy happiness, the extent to which South Africans are debt-burdened is both quietly alarming and undeniably tragic. The fact that debt has become a deeply embedded part of our culture is testament to its inextricable link to our hopes, dreams, sense of security and self-worth. In fact, it’s probably safe to say that the nexus between one’s financial situation and self-esteem is a better indicator of credit risk than anything else.

The profile of the average debt-burdened South African goes way beyond the obvious. Over and above younger new recruits and lower income earners, it’s worth noting that people who have indebted friends are more likely to ring up their own significant share of debt. Although debt is unarguably an unpleasant place to be, the illogical power of the herd mentality seemingly anoints debt with more than a dollop of acceptance. It’s for no small reason that the trappings of debt are commonly referred to as a cycle. As consumers we’ve been shamelessly seduced into believing that money can buy us everything from hope to handbags to happiness. The truth is that when we spend on credit, we are mock-purchasing our dreams on someone else’s money – and when the time (all-too-quickly) comes to pay the creditors, our dreams rapidly reduce to fiscal nightmares as we enter the dark pit of debt. Cue the age-old love-hate relationship that so many of us have with money.

The most significant step towards transforming ones financial position is to alter one’s relationship with money. Whilst money on the one hand might be considered entirely practical, it appears that spending is pure emotion. A task as simple as purchasing a birthday present for a friend can give rise to a plethora of human emotions including greed, guilt, fear and shame, not least because society may determine that the value of the gift is an indication of how much you value the friendship.

One of the most common emotional pitfalls by debt-laden consumers is that of rationalising one’s purchases – engaging a deep-set belief that one is worthy of being indulgent because one works hard for their money. Rationalised purchases balance precariously on the ‘I deserve this’ premise, but invariably reveal the irrational truth when payment time arrives. Hard-pressed to pay outstanding bills, the consumer is forced to cut back on luxuries, become thrifty and apply all methods of cost-saving. Enter next month’s pay cheque and the consumer, indignant from weeks of untopped Salti-crax, feels the urge to splurge as an overdue reward for enforced austerity.

Unlike the spender who rationalises his purchases, the optimistic spender holds an illogical belief that tomorrow will bring a cure for today’s financial woes. Their consumption is notoriously uncalculated and impromptu as they shop up a storm with a false sense of reality. Reading the small-print, opening bills and checking bank statements are anathema in the world of the eternal ‘shoptimist’ who almost endearingly believes that he’ll win the lottery, be awarded a bonus or be head-hunted for a sought-after position long before credit crunch-time arrives.

Perhaps the saddest, and most common, of the emotional financial trappings is when money is equated to happiness. Far from being a meaningless adage, ‘retail therapy’ really is considered a form (albeit ineffective) of purging for some consumers. Psychological research shows that people are more likely to engage in impulse spending when experiencing emotional emptiness or low self-esteem. Material purchases become poor and unsustainable substitutes for power, happiness, fulfillment and personal satisfaction. Whilst money per se has no power, debt has even less and serves only to unsuccessfully mask the personal shortcomings of the spender.

And yet, psychologists believe that the most powerful underlying cause of debt is something that they refer to as the locus (location) of control. Those who attribute their own success or failure to external factors such as luck, fate, karma or the universe are more likely to find themselves deep in debt. People who rely on external control factors are unable to accept that their debt situation is a direct result of their actions, choices and decisions. Continually at the mercy of external control factors, these consumers consider themselves to be undeserving victims of circumstance and spend their lives trawling through debt, waiting for somebody else to fix the problem.

On the other hand, people with an internal locus of control understand the very basics of responsibility – that for everything they buy there is an opportunity cost that may affect something else they may want in the future. They have an innate acceptance that financial freedom is something which lies solely within their personal control. They understand that, quite simply, debt is not something that happens to you, but rather a precarious financial situation that most consumers enter into consensually. Taking control of one’s debt is as simple as claiming ownership of the problem and as complicated as you’ll allow your debt reduction plan to be.

Taking control of our emotionally driven behaviour, recalibrating our attitude towards money and accepting personal responsibility for our financial positions will grant us final passage into the world of financial freedom. I’ll end with the entirely relevant words of Albert Ellis who suggests that, “The best years of your life are the ones in which you decide your problems are your own. You do not blame them on your mother, the ecology, or the president. You realise that you control your own destiny.”